As was reiterated by the Federal Reserve today, November 3rd, 2021, interest rate hikes are on the horizon. With Jerome Powell and the Federal Reserve announcing asset tapering for Treasuries and MBS (mortgage-backed securities) starting this month, mortgage rates increases are set to follow.
The real estate market is on an 18-month, near-vertical price increase. While real estate still remains the most prominent investment, price inflation for property does have a slowdown in sight. With the first rate hike expected no earlier than July 2022, now is still a great time to buy real estate. Here are some expert predictions for the mortgage rates coming into the new year.
Mortgage Rates And Affordability
Because mortgage rates are a major factor in home affordability, any news of rate increases can spell troubles for first-time home buyers. With historically low interest rates, we have seen a swarm of demand for real estate. The supply and demand problem is the main contributing factor to historically high real estate prices. Record low interest rates go hand-in-hand with record high real estate prices. However, over the past month going into the holiday season, interest rates have slowly ticked up. And with the Federal Reserve’s decision to start tapering today, rates are ticking up higher in anticipation of rate hikes.
Freddie Mac Mortgage Rate Prediction
According to Freddie Mac, 30-year fixed-rate mortgages have ticked up. Freddie Mac also expects interest rates to be at 3 percentage points by the end of 2021. The prediction for the end of 2022 is 3.5 percentage points. This indicates one or two interest rate hikes, depending if they are raised by .25 or .50 basis points.
Fannie Mae Mortgage Rate Prediction
The Senior VP and Chief Economist of Fannie Mae predicts similar movements. Doug Duncan is predicting rates back above 3 percentage points as well. While Fannie Mae predicts interest rates around 3.3 percentage points, they reiterate that these are still well below pre-pandemic levels. In fact, by historical standards, these rates are still historically low and supportive of mortgage demand and affordability.
What Higher Rates Mean To You
Rate rises of half a percent over the next 12 month seems inevitable from today’s levels. While thousands of people were able to lock-in fixed rate mortgages below 3%, this will likely be the last months of this. Higher interest rates will impact monthly payments going forward, and can add thousands of dollars onto your loan over 30 years.
To sum up all the finance jargon, higher rates plus higher real estate prices equals less qualified buyers.
With less qualified buyers, prices will ultimately find an equilibrium in the coming months. Real estate prices will more than likely continue to increase, however, at a slower rate than over the past 18 months.
Mortgage Rates Increase Conclusions
With buyers ranging from first-time home buyers, move-up buyers, or changing homes based on needs, purchasing now rather than later will save you money. It is wise to purchase homes while interest rates are incredibly low nationally. While home affordability has lowered due to higher prices, adding higher rates to the equation will create more affordability problems. Reach out to Premier Homes Team to see what your options for home buying are going forward. If you are looking for a home before interest rates are raised in the following months, check out our listing site.